May contract expires; traders weigh OPEC talk, demand views

SAN FRANCISCO (MarketWatch) — Crude-oil futures gained Monday, with the market stretching the commodity’s price climb into a third session in a row, even as traders continued to fret about the outlook for demand and as a production cut by key producers looked unlikely.

May crude oil
US:CLK3
rose 75 cents, or 0.9%, to settle at $88.76 a barrel on the New York Mercantile Exchange, down from an earlier high above $89, but above an $87.55 low.

The May contract expired at the close of Monday’s trading session.

Prices finished last week with a loss of 3.6%, marking the third consecutive week of declines for the commodity, even though they tallied a gain of 1.8% on Thursday and Friday.

The new front-month contract, June oil
CLM3, +0.88%
tacked on 92 cents to close at $89.19 a barrel.

After last week’s loss, “oil is oversold and due for a bounce in the short term,” said Fawad Razaqzada, technical analyst at GFT Markets, in emailed comments, who said prices may be poised for a move towards $92 before possibly turning again.

“Of course, it is also possible for it to turn around now and head back lower, but the recent price action has been somewhat constructive and this is probably encouraging the shorts to cover their positions,” he said.

OPEC talk

Oil prices on Friday rose after a Venezuelan official from the Organization of the Petroleum Exporting Countries reportedly said late Thursday that the cartel may hold an emergency meeting to discuss the recent drop in oil prices. But oil futures came off session highs on Friday when other OPEC officials said the group hadn’t made plans to meet, according to The Wall Street Journal.

He also said he didn’t expect the cartel to hold an extraordinary meeting because the next scheduled one was coming up soon. It’s set for May 31.

“The oil minister of the United Arab Emirates has initially put a stop to the price recovery,” analysts at Commerzbank wrote in a note to clients.

Getty Images

A natural-gas site near Tioga, N.D.

“As far as oil production policy is concerned, the United Arab Emirates are among Saudi Arabia’s close allies and are thus likely to have a similar opinion to the largest OPEC producer,” they said. “Without the willingness of Saudi Arabia, the United Arab Emirates and Kuwait, no cut in OPEC production is conceivable.”

Over in London Monday, June Brent crude
UK:LCOM3
finished back above $100 a barrel on ICE Futures. It closed up 74 cents, or 0.7%, at $100.39.

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said that the $100 level for Brent is “a level that Saudi Arabia is likely to defend via production cuts, with or without OPEC support.”

Saudi Arabia had increased production last year, in contrast to OPEC guidance in anticipation of sanctions against Iranian oil and to balance global markets, Haworth said, “so declines in their production are likely.”

The price pressure for oil Monday included disappointing U.S. existing-home sales data for last month and a drop in earnings for Caterpillar Inc.
CAT, -1.39%
as both feed a weak demand outlook.

U.S. existing-home sales for March fell 0.6% to a seasonally adjusted annual rate of 4.92 million. Economists polled by MarketWatch were looking for a sales pace of 5.03 million.

Meanwhile, first-quarter earnings from Caterpillar fell 45%, and the bellwether machinery maker also cut its forecast for the year. The company’s results offer an indicator for the world economy, which then provides a view on the outlook for energy demand.

Back on Nymex, natural gas for May delivery
US:NGK13
dropped 14 cents, or 3.2%, to $4.27 per million British thermal units. The contract last week climbed 4.4%, gaining after government data showed a smaller-than-expected increase in weekly U.S. supplies.

May gasoline
US:RBK3
slipped by 0.1% to $2.77 a gallon and May heating oil
US:HOK3
edged up by 2 cents, or 0.8%, to $2.81 a gallon.

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